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Soquel, CA 95073
Phone: (831) 464-6884
Fax: (831) 464-6886
In 1968, Congress enacted TILA (15 USC §§1601-1693r). Section 105 of TILA requires the Federal Reserve Board to promulgate implementing regulations, which are collectively known as Regulation Z (12 CFR pt 226). Regulation Z provides for Official Staff Interpretations (known as the Commentary), which give guidance to the attorney, effectively putting meat on the bones that is TILA; reliance on the Commentary protects the creditor from any civil or criminal liability under TILA.
Initially, TILA was only a disclosure statute; by requiring that consumers be informed of the true cost of their borrowing, it was hoped that consumers could not only make informed decisions, but also make comparisons between similar lending products. In 1980, however, TILA was substantially changed to provide greater simplicity and new consumer protections.
In 1994, TILA was again amended to add the Homeowner's Equity Protection Act (HOEPA), which was implemented through Reg Z §32 and is known as "HOEPA" to those who work with borrowers and "Section 32" to those who work with lenders. HOEPA was an attempt to control predatory lending practices that were perceived to be a problem in the "sub-prime" lending arena. Sub-prime loans are those made to borrowers who do not meet conventional loan criteria (i.e., who have depressed credit scores, high income-to-debt ratios, unconfirmable income sources, and so forth). Sub-prime lenders charge higher interest rates and fees to borrowers because the loans are considered higher risk.
Since interest rates, over time, can vary significantly, HOEPA establishes triggers indexed to the Treasury Bill rate. If the Annual Percentage Rate (APR) of a home loan exceeds 8 percent plus the comparable T-Bill rate on a first deed of trust (10 percent on a second deed of trust), it is a HOEPA loan. Alternatively, if the costs and fees of the loan exceed eight points, it is a HOEPA loan. It was through HOEPA that federal law began to prohibit certain loan terms and lender behavior.